Wednesday, September 20, 2006

Canada's buoyant housing market continued to cool off last month as sales fell 6.4 per cent in the wake of rising home prices and higher mortgage rates.

It was the third consecutive month of year-over-year sales declines, although the average home price surged 11.6 per cent to $292,989, according to a report released yesterday by the Canadian Real Estate Association (CREA).

"We have seen some cooling in Central and Atlantic Canada, but the housing market out West has been delivering extremely strong, and quite dramatic, price gains," said Toronto-Dominion Bank economist Craig Alexander.

"Calgary home prices were up 50 per cent in August, and that is unbelievable."

Seasonally adjusted, home sales in Canada's major markets fell to 27,657 units in August, as new listings rose 2.8 per cent to 47,117.

"The average price growth will slow down" as new listings increase, even in the stronger markets, and home sales will continue weakening, Mr. Craig predicted in an interview. "The current 11.6 per cent [price increase] is not sustainable."

Calgary, whose economy is driven by the booming oil patch, saw a 9.8-per-cent drop in home sales in August, while new listings jumped 29 per cent to 4,271. "More properties are coming onto the market, and this is why we think that home price growth will slow," he said.

Edmonton marched to a different beat last month with sales rising 7.5 per cent as the average home price jumped 38 per cent.

In Toronto, home sales fell 6.7 per cent in August as the average price rose 4.6 per cent. In Vancouver, sales fell 18.6 per cent while the average price rose 18.3 per cent.

But the Canadian housing market is not poised to head in the same direction as the deteriorating U.S. housing market that has been fuelled by speculators, Mr. Craig said. "I don't think there are the same sort of risks of a major housing correction."

CREA economist Gregory Klump expects the housing market to continue to slow for the rest of this year and in 2007, while prices keep rising -- albeit at a slower pace.

"We are on a path that is trending towards more normal levels" since monthly sales peaked in August, 2005, Mr. Klump said. That's when 29,550 homes were sold. (A normal level of housing activity is defined as monthly sales of 18,000 to 22,000 units.)

The market continues to be affected by rising interest rates and higher mortgage-carrying costs resulting from increased home prices, Mr. Klump said.

On a year-to-date basis, home sales are still up 1.4 per cent from a year ago because of strong activity at the beginning of the year.